China Bank Corp. economist Domini Velasquez said Wednesday tapping the International Monetary Fund facility in addressing liquidity or deficit needs will be a last resort for the Philippines.

"The Bangko Sentral ng Pilipinas has sufficient international reserves," Velasquez told the Daily Tribune on Wednesday. "Economic growth prospects remain decent, even if we are faced with external headwinds and cost of living challenges."

Asked to comment on BSP Governor Felipe Medalla's recent statement that the government is open to tapping a repurchase agreement with the IMF should the country need additional funds, Velasquez said, "Even if the fund is readily available, we think that the current situation does not warrant tapping of the facility."

Medalla had said during the recently held The Asset 17th Philippine Summit that the IMF's facility would be available within the year. It is also projected to cost the government 10 to 15 basis points on top of the US Federal Reserve's overnight rates.

The Philippines graduated as a recipient of IMF loans under the administration of the late Benigno Aquino III.

"We borrow effectively from them, a repo. Because remember, we have lots of securities in the US. Remember, 60-70 percent of our reserves are dollar securities. In other words, we don't have to sell them, and we use them to borrow rather than sell them," Medalla said.

"I think the US is also not interested in us selling it because if all of us are selling our US dollar securities, the yields will rise, which is too much, which is not good for the US either," he added.

Combat inflation

Medalla said creating this "repo arrangement" is one of the ways that the US can help other countries affected by its efforts to combat inflation. The US has been tightening its monetary policy to attain its inflation target of 2 percent.

Repo is a transaction in which the borrower temporarily lends security to the lender for cash with an agreement to repurchase it in the future at a predetermined price.

Chief economist Michael Ricafort of Rizal Commercial Banking Corp. said that this would help add to the country's available funding facilities, if needed, by using US government bonds as collateral, without the need to sell them outright in the market to get dollar funds.

"This would complement dollar funding agreements of the country with other central banks in Asia, thereby adding to the cushion for the peso exchange rate, if needed, based on existing global best practices as countries collectively learned from the lessons of the Asian financial crisis in the late 1990s and past crisis periods," he added.